The Energy Revolution has begun and will change your lifestyle

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The Energy Blog is where all topics relating to The Energy Revolution are presented. Increasingly, expensive oil, coal and global warming are causing an energy revolution by requiring fossil fuels to be supplemented by alternative energy sources and by requiring changes in lifestyle. Please contact me with your comments and questions. Further Information about me can be found HERE.

Statistics

Oil

March 23, 2008

. . . If you want to understand why Exxon won't produce more, it helps to listen in to ExxonMobil's presentation to analysts in New York City in early March. Halfway through the three-hour meeting, Exxon management flashed a chart that showed the company's worldwide oil production staying flat through 2012. . . .

Yet even with prices at the pump near all-time highs, Exxon isn't planning on producing any more oil four years from now than it did last year. That means the company's oil output won't even keep pace with its own projections of worldwide oil demand growth of 1.2% a year. . . .

"We don't start with a volume target and then work backwards," Instead, he said, his team examines the available investment opportunities, figures out what prices they'll likely get for that output down the road, and places their bets accordingly. "It really goes back to what is an acceptable investment return for us."

-- Exxon Chairman Rex Tillerson

. . . Since 2000, Exxon's oil output from two of its largest regions, the U.S. and Europe, declined a startling 37%. That's 500,000 fewer barrels a day in just seven years. . . .

Exxon plans on bringing new fields online in Russia, the Middle East, and Africa over the next four years but they won't be enough to generate growth beyond what the company is losing due to the maturation of its fields in the North Sea and Alaska, the nationalization of its fields in Venezuela, and volumes lost due to production sharing agreements with other countries. . . .

Big oil companies can continually miss their targets or even target no growth and still shine on Wall Street due to the peculiar nature of commodity businesses. Less supply of a commodity means higher prices. Higher oil prices mean more profits for the oil companies. Exxon shares have risen 21% in the past year—and even closed a bit higher on Mar. 5, the day of its analysts meeting.

December 12, 2007

The average price of crude oil was $66 in 2006, is expected to rise to $72 this year and will reach $85 a barrel in 2008, Caruso said in testimony prepared for a joint hearing of the Senate's permanent subcommittee on investigations and the subcommittee on energy that's focusing on speculation's role in the recent oil-price surge. . . . more

November 29, 2007

Is the THAI™ system (below) or any other process that comes along for economically recovering heavy oil and bitumen the answer to our dependence on oil for the majority of our transportation fuels? This does not appear to be pie in the sky, as they already have a 3,000 bpd pilot plant in operation. Since oil for transportation systems is becoming very expensive (relatively, especially in the US and other dollar denominated countries) and our current development of alternative liquid fuels and/or electrically fueled vehicles is not currently moving ahead fast enough to have a significant impact on oil prices in the near future, (nor would this process in the short term) should we celebrate such a process as a possible constraint on oil prices? There is much heavy oil in the Western Hemisphere other than Canada, including Venezuela and western parts of the US, the use of which would greatly reduce our dependence on oil from the Mideast and Africa. It certainly would be a big boost to the Canadian economy. If widely adopted what does this do to further development of renewable energy and the accompanying reductions in CO2 emissions?

A new method developed in Britain over the past 17 years for extracting oil is now at the forefront of plans to exploit a massive heavy oilfield in Canada.

Duvernay Petroleum is to use the revolutionary Toe-to-Heel Air Injection (THAI™) system developed at the University of Bath at its site at Peace River in Alberta, Canada.

Although heavy oil extraction has steadily increased over the last ten years, the processes used are very energy intensive, especially of natural gas and water. But the THAI™ system is more efficient, and this, and the increasing cost of conventional light oil, could lead to the widespread exploitation of heavy oil.

May 26, 2007

Sonic Environmental Solutions Inc., (CDNX: SNV) Vancouver, BC, CA, issued an announcement that it has entered into an agreement with PetroSonic Energy Systems Inc. for the development of a crude heavy oil upgrading and processing system utilizing Sonic's patented technologies.

According to Sonic it has exclusive rights to Sonoprocess™ technology which utilizes a patented family of sonic generators proven in several large scale process applications that provide the Company with a powerful platform for new and enhanced industrial and environmental processes.

According to the press release:

The Under the terms of the agreement, PetroSonic will collaborate and fund the initial development of a new heavy oil Sonoprocess(TM) for the upgrading and processing of heavy oil. The first stage of the agreement is designed to confirm the development concept, after which Petrosonic will engineer and install a complete prototype plant to optimize the design variables of the system.

Following the successful completion of the first stage, Sonic will have a 40% interest in PetroSonic and will work together with PetroSonic on a prototype installation directly in the field. PetroSonic has an obligation to fund the creation of the prototype plant, subject to Sonic's option to fund its pro rata share.

By integrating Sonic's industrial-scale technology into an upgrading Sonoprocess(TM) for heavy oil, PetroSonic expects to be able to significantly improve the economics of the midstream processes. Upon successful demonstration of the prototype plant, PetroSonic will have a right to obtain a global license from Sonic to use the process, subject to paying a royalty to Sonic. PetroSonic anticipates that its contacts with oil producing companies should enable development and commercial revenues to be fast-tracked.

PetroSonic was founded by CEO Dr. David Kahn in conjunction with Sonic and strategic investors, specifically to develop an economic process for upgrading heavy oil from small and medium producers while addressing the concerns of the producer, pipelines and refineries.

Any process that reduces the price of heavy oil, for which we have plentiful supplies in Canada and Venezuela, could help keep the price of oil under control and ensure a greater supply of oil. It does not however address the huge environmental price we pay for mining heavy oil.

May 24, 2007

The International Energy Outlook 2007 (IEO2007) presents an assessment by the Energy Information Administration (EIA) of the outlook for international energy markets through 2030. Selected excerpt's regarding total energy consumption and liquids are given in the remainder of this post. Other topics will be reviewed later.

In its reference case World marketed energy consumption is projected to increase by 57 percent from 2004 to 2030. Total energy demand in the non-OECD countries increases by 95 percent, compared with an increase of 24 percent in the OECD countries.

The IEO2007 reference case projects increased world consumption of marketed energy from all sources over the 2004 to 2030 projection period (left). Fossil fuels (petroleum and other liquid fuels, natural gas, and coal)

Liquids remain the dominant energy source, given their importance in the transportation and industrial end-use sectors; however, their share of the world energy market in this year’s outlook is lessened in the projection, as other fuels replace liquids where possible outside those sectors.

World consumption of petroleum and other liquid fuels, grows from 83 million barrels oil equivalent per day in 2004 to 97 million in 2015 and 118 million in 2030. liquids production is projected to increase by 14 million barrels per day from 2004 to 2015 and by an additional 20 million barrels per day from 2015 to 2030. OPEC producers are expected to provide more than one-half of the additional production in 2015 (8 million barrels per day) and more than two-thirds in 2030 (23 million barrels per day). Non-OPEC production in 2030 is projected to be 12 million barrels per day higher than in 2004, representing 35 percent of the increase in total world production over the 2004 total. The estimates of production increases are based on current proved reserves and a country-by-country assessment of ultimately recoverable petroleum, as well as the potential for unconventional liquids production.

March 07, 2007

In its latest analysis of Canada's oil sands assets, Wood Mackenzie finds that capital costs per peak flowing barrel have increased by some 55% since the beginning of 2005, putting pressure on returns on investment in an area where project economics are already considered relatively marginal.

Conor Bint, Upstream Research Analyst for Wood Makenzie said; "Marginal economics have always been a concern for companies operating in the oil sands, breakeven prices are high and rates of return relatively low in comparison with conventional projects, particularly for mining projects." Wood Mackenzie estimates that mining projects have an average breakeven price of US$28/bbl and IRR of just 16%. Rates of return are more favourable at the less capital intensive in-situ projects, averaging around 22%. ...

Between now and 2015, Wood Mackenzie expects some Cdn$125 billion to be spent in the oil sands sector, representing a 42% increase on its early 2006 forecast for the same period (Cdn$88 billion). Wood Mackenzie's analysis finds that the significant increase in costs is largely due to labour shortages and increased material costs, which have created a hyper-inflationary environment within the oil and gas industry in Alberta. ...

October 09, 2006

Forbes.com has much of this weeks issue devoted to a Special Report "2007 Energy Outlook", which has nine articles covering Consumption, A forecast for low cost oil, Discussion of oil supply from: Latin America, Russia, Europe and America, and China; The cost of standby by power, The worlds largest geothermal heat pump system at Fort Knox and an article on ethanol, from the investors viewpoint.

A timely and fairly interesting group of articles, especially for the novice. The article on consumption has a lot of statistics on how energy consumption is growing. Its too bad they did not include articles on plug-in hybrids or renewable energy. The slant of the articles is as you would expect from big business.

September 11, 2006

The Oil Drum has an excellent in-depth article, as usual, that takes a closer look at the prospectivity, geology, economics, technology, reservoirs, hydrocarbons and logistics of the Lower Tertiary play in the Gulf of Mexico (LTGOM), the whole region, not just the Jack-2 discovery (earlier post).

With the successful test drilling of Jack-2 in the ultra deepwater Gulf of Mexico, there has been a media blitz proclaiming the good news. The "peak oil" theory is under attack. Business Week's September 7, 2006 article Plenty of Oil--Just Drill Deeper The discovery of reserves in the Gulf of Mexico means supply isn't topping out, is one of the most blatant attacks which the OD refutes point by point with the following conclusion: Business Week's assertion that really, really ultra-deepwater production from offshore regions like the LTGOM will "tip the balance of supply and demand in the long term" globally is unwarranted speculation.

Three of of their points that are consistent with my views and which I consider very important are :

1) US petroleum production averaged 5.093/mbd in the first 7 months of 2006. Assuming a generous future decline rate of about 5% for the US as a whole, production will be 4.149/mbd in 2010, a net decline of 0.944/mbd. Future production from the LTGOM might be 0.500/mbd sometime after that. If we add production from fields like Chevron's Tahiti, which is expected "to have a maximum daily production of 125,000 barrels", then it is reasonable to expect that Gulf of Mexico production will be a wash—declines will be offset six to eight years from now in the best case.

September 06, 2006

This discovery is important for the oil companies, but it doesn't change the overall picture of decreasing supplies of increasingly expensive oil. By the time this oil gets to market our other reserves will have decreased significantly and our consumption will have increased, so at best it will slightly slow down the increases in oil prices. The downside is that it will tend to reduce the urgency of finding alternative ways of powering our vehicles.

NEW YORK (CNNMoney.com) -- Chevron and its partners have successfully extracted oil from a test well in the deep waters of the Gulf of Mexico, an achievement that could be the biggest breakthrough in domestic oil supplies since the opening of the Alaskan pipeline. ...

"At best we're not going to see a drop of oil for five years, maybe seven years," said Fadel Gheit, oil analyst for Oppenheimer. "It's great news for Chevron and even more so for Devon. But you can't hold your breath waiting for it." ...

August 09, 2006

A well known Cambridge research firm challenges the notion that the world is running out of oil:

Global oil and liquids supply capacity could increase as much as 25% by 2015, with unconventional sources, including gas-related liquids and extra-heavy oils accounting for a major proportion of net capacity growth, according to Cambridge Energy Research Associates’ (CERA) July, 2006 benchmark field-by-field analysis of worldwide hydrocarbon liquids production capacity.

CERA’s examination of actual activity and production data covered existing fields and 360 new projects -- 250 new non-OPEC and 110 new OPEC development projects -- expected to start production by 2010. The analysis points to global productive capacity rising from 88.7 mbd in 2006 to 110 mbd in 2015

July 17, 2006

The American Energy Security Study (AESS) is the official name of the report referred to in the previous post. In a brief review of the executive summary I picked up the following items that give a little more background about the report.

The American Energy Security (AES) Study shows that the United States can eliminate dependence on oil imports entirely by 2030. It establishes a bold plan to replace approximately five percent of imported oil each year for 20 years, beginning in 2010 (see Figure 1 below). Assuming aggressive implementation beginning in 2007, under the SSEB American Energy Security initiatives domestic liquid fuels production and transportation efficiency savings begin gradually after 2010 and ramp up to produce most of the nation’s liquid fuels requirements by 2030.

To establish U.S. energy security and independence by 2030 all feasible supply and demand options must be aggressively pursued. There is no single answer:

Transportation energy efficiency improvements are important but, by themselves, can contribute only a small portion of the required solution.

Renewable biomass fuels are a critical part of the portfolio of required initiatives, but can produce less than one-fourth of the required liquid fuels.

CTL, oil shale, and EOR will all contribute substantially, and all three technologies must be aggressively deployed.

The U.S. is endowed with the largest alternative oil resources in the world. This includes five hundred billion tons of coal (oil equivalent of approximately 750,000 billion barrels), the potential to sustain 1.3 billion tons of biomass collection/harvesting for liquid fuel production by 2030 (oil equivalent of approximately 4.5 million barrels per day to perpetuity), more than a trillion barrels of oil shale liquid fuels, and 80+ billion barrels of oil stranded in conventional reservoirs that are technically recoverable using CO2 injection and sequestration to enhance oil recovery. These resources rival estimated worldwide conventional oil resources of 1-2 trillion barrels.

Their conclusion is: "The importance of fuel economy is thereby twofold. First, it delivers bigger savings in the near to medium term. Second, it makes it conceivable that biofuels could almost completely replace gasoline for our cars and trucks in the long term because we would need much less fuel."

The top edge of the blue area on this graph indicates the total gasoline demand for our cars and light trucks under a business-as-usual scenario.

If our average fuel economy is increased to 40 mpg in 10 years, we have some modest fuel economy improvements beyond that date, and also add in some policies to help reduce miles traveled, all of the oil in the blue area can be saved. The green area represents the potential savings from ethanol, if everything goes well in growing that industry. In the near term our saving from biofuels is modest, but by the end of the period biofuels nearly replace all gasoline usage. Projected demand would drop to the line between the blue and the green.

June 27, 2006

A Reuters article reported that a survey taken by the Mineraloelwirtschaftsverband (MWV) indicated that German motorists' demand for gasoline and diesel will drop by nearly a quarter in the next 20 years as fuel efficiency rises, the population shrinks and high prices discourage use.

Consumption of the two products in 2025 will be just under 40 million tonnes, down from 53.1 million tonnes in 2005. Compared with 2005, gasoline usage for road traffic alone will fall by 42 percent to 14 million tonnes by 2025. Annual diesel demand by that date will probably reach 26 million tonnes, which would represent a decline by 12 percent from the 2005 level.

As a consequence, carbon dioxide emissions from road traffic would fall by 30 percent over the 20-year period to 113 million tonnes a year, MWV predicted.

June 05, 2006

An important milestone, in the world of oil distribution, was reached today with the announcement by BP, operator of the Baku-Tblisi-Ceyhan pipeline, that the first cargo of oil transported through the the pipeline from Azerbaijan has been exported from the Cehan marine terminal on the Turkish Mediterranean coast.

A cargo of around 600,000 barrels of crude oil from Azerbaijan was loaded on to the BP tanker, British Hawthorn, which sailed from the terminal today. The loading marks the start of the export of Azerbaijan’s oil via the BTC oil pipeline to world markets, without passing through the crowded Turkish straits. The 1,768-kilometre pipeline will allow a million barrels of oil a day to be exported from the Caspian.

May 26, 2006

Rueters conducted a global energy summit earlier this week and had several interesting topics, here are links to a few. I could have written a post on each one, but that would have been too much on the same theme and left you with no digging to do:

Oil industry investments to boost crude oil supply and refining capacity could combine with an economic downturn, due in part to high energy costs, to bring current lofty prices to an end in two to four years.

The refining business will continue to enjoy soaring profit margins until at least 2010, when new refinery expansion projects start to kick in, Tesoro Petroleum Corp.'s chief financial officer said on Wednesday.

May 20, 2006

Oil production in Canada, the biggest supplier to the US market, is expected to grow to 4.9 million barrels a day by 2020 from last year's daily average of 2.5 million barrels, the Canadian Association of Petroleum Producers (CAPP) said in its annual production forecast. The main source of growth in the western Canadian production forecast, over the next fifteen years, comes from Alberta’s oil sands.

Bitumen production from the oil sands can be extracted using one of two recovery processes, in-situ for areas deeper than about 80 meters and with mining operations where deposits are closer to the surface. Oil sands bitumen production can be marketed as a heavy crude blend or it can be further upgraded and marketed as synthetic oil.

April 21, 2006

I'm always trying to come up with an explanation of why oil prices are going so high. It finally dawned on me today that one of the not well advertised factors was decreasing supplies of light sweet crude. It was brought on by a comment to one of my previous posts, I don't know which one or by who, but thanks to whoever it was. It turns out several other articles have been written on the subject, but this is my version.

While we may have fairly large oil reserves remaining, the peak production of "conventional oil", the nomenclature that is used by many to describe the inexpensive light sweet oil that has made up our oil supplies until recently, has passed. While conventional oil still makes up the majority of oil that is processed, the quantity of it is now decreasing and must be made up for by other supplies as well as the amount needed to supply the 1.5% increase in demand that has historically taken place (higher prices eliminated the increase during March and may continue to do so until, if ever, the prices go down). This shortfall is being made up by inexpensive heavy sour oil. Heavy oil is oil that has a higher viscosity (thicker, more gooey) oil than conventional oil. Sour oil is oil that contains more sulfur than conventional oil. Both of these properties make the oil more difficult to process.

This oil cannot be processed by refineries designed to process conventional oil and very expensive (read billions of dollars) "upgrades" have to be made to refineries to enable them to process heavy sour crude. Fortunately, in the US about 75% of refineries can handle heavy sour crude, and this may, in part, be responsible for their high profits. OPEC estimates that 45% of the worlds refineries can handle heavy sour crude and estimates that only 30% of remaining reserves are are conventional oil (I am a little wary of this number as the percentage could easily be reduced by counting the tremendous unproven reserves of heavy oil in Venezuela and Canada). On top of this, environmental regulations have become increasing stringent on the quantity of sulfur that is allowed in diesel and gasoline requiring even more modifications to the refineries.

April 19, 2006

Professor Alan Goldman and his Rutgers team in collaboration with researchers at the University of North Carolina have invented a new catalytic process that could increase the yield of a clean form of diesel fuel made from coal. The method uses a pair of catalysts to improve the yield of diesel fuel from Fischer-Tropsch (F-T) synthesis.

The F-T process produces a mixture of hydrocarbons -- many of which are not useful as fuel. The low-weight and the high-weight Fischer-Tropsch products are useful – the light as gas and the medium-heavy as diesel fuel. The medium-weight products are not useful for much of anything.

Their method uses a pair of catalysts to convert the undesirable hydrocarbons into diesel. The catalysts work by rearranging the carbon atoms, transforming six-carbon atom hydrocarbons, for example, into two- and ten-carbon atom hydrocarbons. The ten-carbon version can be used to power diesel engines. The first catalyst removes hydrogen atoms, which allows the second catalyst to rearrange the carbon atoms. Then the first catalyst restores the hydrogen, to form fuel.

March 15, 2006

Prices for crude oil are above $60/bbl and gasoline prices are rising again. This excerpt from the March 15 issure of This Week in Petroleum expresses a rationale for continued high prices for crude oil and gasoline:

While it is true that crude oil imports over the past four weeks are down slightly compared to the same period last year, this is happening with crude oil prices $5 to $10 per barrel higher than a year ago, and with crude oil inventories nearly 32 million barrels (more than 10 percent) higher, as well. With prices significantly higher and inventory levels the highest in almost seven years, it may be somewhat surprising that import levels are as high as they are. But to many buyers, $60 crude oil can still be

March 03, 2006

State-of-the-art enhanced oil recovery with carbon dioxide, now recognized as a potential way of dealing with greenhouse gas emissions, could add 89 billion barrels to the recoverable oil resources of the United States, the Department of Energy has determined. Current U.S. proved reserves are 21.9 billion barrels. Multiple advances in technology and widespread sequestration of industrial CO2 could eventually add as much as 430 billion new barrels to the technically recoverable resource. Beginning efforts to develop the 89-billion-barrel addition to resources would depend on the availability of commercial CO2 in large volumes.

If this oil could be added to the category of proven reserves, the U.S. would have the fifth largest oil reserves in the world behind Iraq, which has 115 billion barrels, based on present estimates; and an additional 430 billion barrels would make it first, ahead of Saudi Arabia with 261 billion barrels.

March 01, 2006

I thought it would be interesting to share the view point of the CEO of one of the worlds largest oil companies on the future of energy.On 27 February 2006, Lord Browne, BP's Group Chief Executive, delivered a speech "The changing energy market." The following are a few brief excerpts from the speech. It is suggested that you read the whole speech to totally understand his perspective.

.... So let me offer you four facts, and one conclusion.

The first and most fundamental fact is that the demand for energy continues to increase, driven by population growth and by the gradual spread of prosperity.

Over the last twenty four hours, the world’s population has risen by almost a quarter of million – as it does every day, week in, week out. 10,000 new citizens every hour. ....

The second fact is that the United States, Europe, Japan and now China and India, are all significant importers - of both oil and natural gas.

And in each case the requirement for imports is likely to grow.

The forecast for ten years from now is that, worldwide, 70 per cent of total oil consumption and 40 per cent of all natural gas demand will be supplied through trade.

February 23, 2006

This Week in Petroleum for February 23, 2006 has a couple of reasons why the price of oil remains relatively high. The primary reason is fairly obvious to me: "the lack of spare capacity throughout the supply chain." The second is: "the market is in contango, which is defined as a market in which prices for commodities delivered in future months are increasingly higher than for those delivered in months closer to the present."

January 13, 2006

EIA just published its annual World Crude Oil Distillation Capacity tabulation which gives a country by country breakdown of distillation capacity as of January 1, 2006. Distillation capacity jumped up 2.8% in the last year, to 85,127 thousand barrels a day, the highest increase since 1978 and the first time it exceeded 1.0% since 2000. Demand for oil for the first three quarters of 2005 (latest figures available) was up 1.16% over last year, so refinery capacity is up well ahead of demand. This should help eliminate the refinery bottleneck that has existed during the past year, as long as they can get enough crude.

The United States did not show any increase in distallation capacity during 2005, so our imports of refined products are going to increase. China showed the largest increase with 1,596 thousand barrels per day, followed by Saudi Arabia (350) the United Arab Emirates (267), Poland (117) and Germany (105) for a net total of 2,332 barrels per calender day to 84,500. Several countries had a loss of capacity, so note that the total is total net capacity.

The total world crude oil production (including lease condensate) is running about 73,500 thousand barrels per day or about 86% of distillation capacity. This is still a very high percentage on a worldwide basis, it would be OK for an individual country.

These number do not represent total liquids output capacity, natural gas liquids alone are about 7,500 thousand barrels per day, so be careful if you try to compare these numbers to other numbers.

December 10, 2005

A relatively unknown company, Digital Gas has signed an agreement with an undisclosed private company (PRIVATCO) to use high temperature fuel cells (HTFC) to recover a variety of unconventional hydrocarbon resources, especially shale oil. The following is their press release announcing the agreement:

Dec. 9, 2005--Digital Gas, Inc. Ann Arbor, MI (OTC Pink Sheets:DIGG - News) announced today that it has signed an agreement to partner with a private US-based company (PRIVATCO) that owns the exclusive rights to a high temperature fuel cell (HTFC) method which is expected to dramatically reduce the cost for oil and gas recovery from a variety of unconventional hydrocarbon resources.

The broadly-patented HTFC approach is designed to make it possible to economically produce oil and gas from unconventional resources, such as oil shale, tar sands, heavy oil deposits, and coal bed methane, while producing electricity as a byproduct. Under the terms of the agreement, Digital Gas intends to make an equity investment in PRIVATCO, be responsible for drilling contract and funding matters on PRIVATCO-controlled properties, and will have the right to use the HTFC method on properties it acquires independent of PRIVATCO, subject to a royalty payment. Digital Gas expects initial HTFC units to be operational during 2006.

Washington, DC – Secretary Samuel Bodman today announced that the Department of Energy (DOE)-funded “Weyburn Project” successfully sequestered five million tons of carbon dioxide (CO2) into the Weyburn Oilfield in Saskatchewan, Canada, while doubling the field’s oil recovery rate. If the methodology used in the Weyburn Project was successfully applied on a worldwide scale, one-third to one-half of CO2 emissions could be eliminated in the next 100 years and billions of barrels of oil could be recovered.

November 12, 2005

There is a graph on the Peak Energy website that is a startling representation of how oil prices have been going up at a linear pace over the past two years. If the trend is correct, the downward movement in the past couple of months is typical and an upward trend should resume in somewhare in the first quarter. While this pattern may not be a surprise, and is for a relatively short period, the consistency of the trend is amazing. The slope is an increase in oil price of about $14 per year, which would extrapolate to about $74-$75 a barrel for October of next year. I don't believe that such a short term trend means that much statistically, but it certainly argues that the range of oil prices next year could be between $50 and $75.

November 08, 2005

The EIA Short-Term Energy Outlook always has something of interest in it and today was no exception, here are a few excerpts highlighting their view on the Gulf recovery and prices of energy.

Hurricanes Katrina and Rita damaged, set adrift, or sunk 192 oil and natural gas drilling rigs and producing platforms, the most significant blow to the U.S. petroleum and natural gas industries in recent memory. At the beginning of November almost 53 percent of normal daily Federal Gulf of Mexico oil production and 47 percent of Federal Gulf of Mexico natural gas production remains shut in.

Hurricane recovery is underway but it will take many months for a complete recovery. In this scenario, Gulf of Mexico shut-ins for December 2005 are projected to average 33.1 percent for crude oil (10.4 percent of total U.S. production) and 20.6 percent for natural (4.2 percent of total U.S. natural gas production). For refinery capacity, 1.7 percent is projected to be offline. ... It now appears unlikely that anything close to complete recovery will occur before the end of the second quarter of 2006.

This short-term forecast projects that total energy demand is likely to respond to higher prices and hurricane-related destruction by showing relatively flat growth between 2004 and 2005, compared with 1.5-percent growth between 2003 and 2004. However, energy demand is expected to recover in 2006 at a rate of about 2 percent.

Prices for crude oil, petroleum products, and natural gas are projected to remain high during the remainder of 2005 and through 2006 because of tight international supplies and hurricane-induced supply losses. The price of West Texas Intermediate (WTI) crude oil is expected to average $57 per barrel in 2005 and $64-$65 per barrel in 2006. Retail regular gasoline prices are expected to average $2.29 per gallon in 2005 and $2.43 in 2006. Henry Hub natural gas prices are expected to average $9.15 per thousand cubic feet (mcf) in 2005 and $9.00 per mcf in 2006.

The single most interesting item being that they predict the price of WTI to average $64-$65 per barrel in 2006 because of "tight international supplies". Their outlook seems to be much more pessimistic than in previous years. It couldn't be that they are considering the implications of peak oil? It should be kept in mind that since about 62% of our oil is imported that when 10.4% of our production is lost that amounts to 3.3% of our consumption which must be made up with increased imports, releases from our strategic oil reserves or decreased demand. The U.S. crude oil supply is about 16 million barrels per day (mbd) so 3.3% translates to about 0.5 mbd.

November 05, 2005

Rigzone reported that Saudi Aramco had received $13.9 billion in financing from Samba Financial Group for its previously announced plans to expand its capacity from 11 mbd to 12.5 mbd by 2009.

The kingdom's 2005 oil revenue is expected to rise 54% from last year, thanks to red-hot oil prices sparked by hurricanes and limited spare capacity in the Organization of Petroleum Exporting Countries, the bank said.

Export revenue would reach $163 billion, up from 2004's record $106 billion, with the value of Saudi crude for the year averaging $51 a barrel, above last year's $35/bbl. Production is forecast to average 9.5 million b/d, up from 2004's 9 million b/d.

So what does Matt Simmons have to say about this? It would seem they are putting their money where their mouth is this time. I hope this expansion compensates for any decline they have in other facilities. I guess the skeptics will say wait and see if their production ever gets that high. With revenues like reported above it makes me wonder why they need any financing. Their sales went up $57 billion with, what I woud presume were, essentially the same operating costs, so what are we complaining about Exxon's profits of $9.9 billion/qtr.

November 01, 2005

Some good news from China on their oil consumption, which did not grow nearly as fast as it did last year; as reported in this XINHUA news item:

China's refined oil consumption increased only by 5.6 percent year-on-year in the first nine months on stable coal supply, sharply lower than the 19.7 percent growth in the same period last year, a government report said Tuesday.

The country's coal production increased by 10.2 percent to 1.3 billion tons during this period, said the report from the National Development and Reform Commission.

China produced 136 million tons of crude oil in the first three quarters, a year-on-year increase of 4.2 percent. The crude oil import increased 10.6 percent to 94.86 million tons.

Their imports still increased significantly, they will still have a large impact on world oil production. They are the second largest consumer of oil in the world, consuming about 1/3 the quantity of the U.S. They may have substituted some coal for oil, although they are building power plants at a very rapid pace. There internal supplies of oil are close to peaking, so they will not be able to increase production much longer, thus their imports will increase.

October 22, 2005

Oilsands Quest, as subsidiary of CanWest Petroleum Corporation has begun exploration that will identify quality and quality of bitumen of the companies resources on 846,000 acres of land in Northwest Saskatchewan, one of the largest land positions assembled for exploration in the Athabasca oil sands region. Drilling of the first 25 core-holes is expected to begin in a few days. This drilling represents the first phase of exploration to determine determine whether its lands adjacent to the Athabasca oil sands region in Alberta contain sufficient bitumen to justify development of the field. The first phase, to be conducted between October and December is to be followed by drilling of approximately 125 holes during winter.

Extraction of bitumen from tar sands is one of of the more controversial methods of extending our oil resources. The quantity is small compared to our total oil resources, but if it is economical and meets environmental standards, I will not argue against it. The region's economy is highly dependent on this activity. Production requires expenditure of about 30% of the energy contained in the resulting product, as well as questionable environmental impact. All of the province's environmental requirements are being met, but are they sufficient? Historically most of the energy has come from now declining supplies of natural gas. I would be in favor of requiring the oil companies to get their energy from waste products or from their refined products, which has only been done to a limited extent in the past. If there is truly stranded gas, gas that is uneconomical to pipeline, it is probably ok, but stranded gas should be defined so as not to be of use to the local economy now or in the future.

August 17, 2005

VP Dick Cheney is going to Alberta next month and will visit the Canadian oil sands. He is expected to tour one of the major oil sands projects in Fort McCray, meet Deputy Prime Minister Anne Malcolm speak to the Fraser Institute in Calgary and go hunting and fishing at an undisclosed site according to a August 17 article on the GLOBEANDMAIL.COM.

The oil sands have been receiving a lot of interest lately. China, France, Germany and big oil all have been showing interest in the oil sands, touted as having the largest oil reserves outside of Saudi Arabia.

August 15, 2005

A less expensive, more reliable oil production technology that is safer and reduces environmental impact is being commercialized by Completion Concepts Inc., Katy, TX. The apparatus could significantly increase production of heavy oil, an enormous resource that constitutes as much as half of the world’s oil-in-place. Much of America’s heavy oil is produced via a costly steam injection enhanced oil recovery method to produce a crude oil grade that is lower in quality and thus sells for less.

The apparatus, called a Teleperfs", is a telescoping devices that is projected into the face of a formation, anchoring a well liner in place and providing entry ports for formation fluids.

Initially developed through a DOE funded Small Business Innovative Research grant and furthered by an industry consortium, Completion Concepts, Inc. devised a method for production of heavy oil that eliminates certain expenses and risks and offers a low-cost alternative for inhibiting production of sand in an oil well. Read the complete announcement here.

Any technology that increases our oil consumption at lower cost will certainly be appreciated. I assume it might find application in the Canadian tar sands and Venezuela besides the fields that were mentioned in California and Alaska.

July 31, 2005

The US energy bill of 2005 has received a mixed bag of reviews depending on your interests. The folowing are the portions of the energy bill that appear to be most relevant to the topics I discuss:

A two-year extension of a tax credit to companies that produce power from renewable sources — an allocation worth $2.7 billion. The bulk of those funds will promote the construction of new wind farms, a boon to utilities and wind turbine manufacturers, while the remainder will assist biomass, geothermal and hydroelectric companies.

Biofuels : A 7.5 billion gallon Renewable Fuels Standard (RFS) which would add billions of gallons of ethanol, biodiesel and other renewables to the nations fuel supply by 2012. In addition to the RFS, the bill updates the small ethanol producer definition to 60 million gallons, extends the biodiesel tax credit through 2008, and establishes a 30% tax credit up to $30,000 for the cost of installing clean fuel refueling equipment, such as an E85 fuel pump.

Solar : Increases the permanent 10 percent business energy credit for solar to 30% for two years. Eligible technologies include photovoltaics, solar water heaters, concentrating solar power, and solar hybrid lighting. The credit reverts back to the permanent 10 percent level after two years. The bill establishes a 30 percent residential energy credit for solar for two years. For residential systems, the tax credit is capped at $2,000.

Geothermal, Wind: The bill continues to include geothermal energy in the Section 45 Production Tax Credit (PTC) for the full 1.9 cent/kwhr credit amount, but expands the credit period from five to the full ten years. As a result, geothermal and wind will now receive equal tax treatment -- the full ten-year, 1.9 cent production tax amount. Other technologies, such as open loop biomass, receive the full ten-year credit but for half the credit amount, or 0.95 cents/kwhr. The biggest clean energy perk in the bill was a two-year extension of a tax credit critical to companies that produce power from renewable sources -- an allocation worth $2.7 billion. The bulk of those funds will promote the construction of new wind farms, a boon to utilities and wind turbine manufacturers, while the remainder will assist biomass, geothermal and hydroelectric companies.

Direct users of geothermal energy may use a simpler procedure for leasing, or establishing a fee schedule instead of royalties payments. State and local governments are allowed to use geothermal resources for public purposes at a nominal charge.

Hybrid, fuel efficient vehicles: Close to $875 million in tax credits could be given to those who buy hybrid gas-electric vehicles before 2010. The bill favors companies that are just getting into the hybrid business. Each manufacturer can apply the tax credit to just 60,000 vehicles. Toyota sells roughly 150,000 hybrids per year and Honda 50,000 which means that a only a portion of their vehicles will be eligible for credits. The bill fails to include any provision for new fuel efficiency standards.

A new category of tax credits known as clean renewable energy bonds, or CREBs, that have an estimated value of $400 million. These tax-exempt bonds can be issued by local governments or electricity cooperatives to help pay for wind, solar, biomass and other specified projects. An additional $194 million will go toward the two-year extension of excise- and income-tax credits for manufacturers of biodiesel, a soybean derivative that is blended with regular diesel.

June 19, 2005

The following are excerpts from President Bush's June 15th remarks to the 16th Annual Energy Efficiency Forum

The primary cause of rising gasoline prices is that the global demand for oil is growing faster than global supply....The first step toward making America less dependent on foreign oil is to improve conservation and efficiency....Hybrid vehicles are one of the most promising technologies immediately available to consumers....I propose that every American who purchases a hybrid vehicle receive a tax credit of up to $4,000....We are also encouraging automakers to produce a new generation of modern, clean-diesel cars and trucks.... Congress should extend the tax incentives for the purchase of hybrid vehicles to clean diesel cars and trucks....the Environmental Protection Agency is working to simplify rules and regulations for refinery expansion....my administration launched an ambitious program called the Hydrogen Fuel Initiative. The energy bill will authorize additional funds for this vital initiative. With bold investments now, we can begin to replace a hydrocarbon economy with a hydrogen economy....We've got to be aggressive about finding alternative sources of fuel. And one such source is ethanol....I like the idea of spending money on research to make ethanol more feasible....we can get the same type of alternative fuel from soybeans. It's called biodiesel....To encourage greater use of ethanol and biodiesel, my administration supports a flexible, cost-effective renewable fuel standard.... This proposal would require fuel producers to include a certain percentage of ethanol and biodiesel in their fuel. I proposed $84 million in the 2006 budget for ongoing research into advanced technologies that can produce ethanol from farms, forests, or even municipal waste dumps.... the Department of Energy is funding research and development of super-conducting power lines. It's important research because it will enable us to more efficiently move electricity....One day, technologies like solar panels and high-efficiency appliances and advanced insulation could even allow us to build "zero-energy homes" that produce as much energy as they consume....My budget for 2006 brings clean coal funding to $1.6 billion over five years....Congress needs to pass the Clear Skies Initiative....passing it, not only will we clean the environment, but it will result in tens of billions of dollars in clean coal investments by private companies....to further increase our natural gas supply, Congress needs to make clear federal authority to choose sites for new receiving terminals for liquefied natural gas....We need to expand our nation's use of nuclear power....So I've directed the Department of Energy to work with Congress to help pass legislation that will reduce uncertainty in the nuclear plant licensing process....such as federal insurance to protect the builders of the first four new plants against lawsuits, bureaucratic obstacles, and other delays beyond their control.

In general I support these ideas. However (my cynical side), I don't think these remarks have much to do with what actually gets enacted into law. It is good too see that the president acknowledges that demand rather than supply is driving our pending energy shortage. His emphasis on hybrid cars is encouraging. $84 million for research on alternative fuels seems like such a pittance compared to the billions on the hydrogen initiative and the clean coal program. I know that his remarks on coal and nuclear energy will be controversial, but I believe that we have no choice but to go ahead with these programs. The clean coal program, which includes sequestration, is the one sure thing we have to fall back on. The environmental issues associated with coal mining are probably not addressed and could and should be. Building four nuclear power plants (I thought it was to be three) is essential to demonstrate that safer nuclear plants can be built. I personally think that a fuel recycling program should be initiated to take care of our mounting nuclear wastes, rather than using the Yucca Mountain storage scheme. If the hydrogen economy ever becomes a reality (I hope not) our coal reserves will deplete rapidly and nuclear may be our only option. Development of a massive renewable fuels program would be a much wiser use of our tax dollars.

June 02, 2005

With an estimated 2 trillion barrels of shale oil under US soil -- roughly 60 % of the world's known deposits -- successful development would, at least on paper, begin to change the international oil business. The US would become the world's single biggest oil source, far surpassing Saudi Arabia's proven reserves of 261 billion barrels. More than half of it is in the Green River formation of Eastern Utah, northwestern Colorado and southwestern Wyoming. The new energy bill will most likely contain incentives of some sort for developing this resource.

May 01, 2005

As reported in the April 24 Washington Post, the largest energy deal in history was a $12.8 billion joint venture announced in February between state-owned Qatargas and oil majors Exxon Mobil and Total. A single $7 billion plant to be built by Exxon Mobil to turn natural gas into diesel (GTL) is the largest investment ever by America's largest company. Other companies are investing more billions into Qatar's natural gas resources. According to some economists, per capita income in Qatar will be the highest in the world.

While this is not earth-shaking news to most, it make the point very well -- big oil is interested in doing what they know best. Tar sands, heavy oil, renewables, etc do not have the ROI of natural gas and more conventional oil projects as long as their is something more profitable to do. The gas to oil facility uses fairly new technology (maybe not really, but it is new to big oil), but it has been well researched and working with a clean feedstock, like natural gas, is far easier than gasification and liquefaction of biomass or even coal. They will and perhaps they should (from their investors point of view) follow this road. It is up to governments to develop and demonstrate emerging technologies. Since the U.S. government does not seem to believe that we have as an urgent need, it is up to us to convince them that oil is running out soon and that we need to be working much harder to mitigate the coming crises. I have a minority belief that big oil does not have a much greater influence on the federal government than most other lobbyists do, rather it is not politically wise for the administration to solve any problems that are not immediately threatening. As long as EIA maintains that we do not have an immediate problem, they can hide their heads in the sands and ignore any other sources of information, including Bush's former advisor Simmons. The Hirsch report and the ORNL report are noble cries from the wilderness, but are they having any impact? In the final analysis the only ones they will listen to are the voters.

April 12, 2005

A recent article in Rigzone pointed out these opposite views on oil supply :

Well known oil man T. Boone Pickens, who has been correct about this market about as well as anyone else, was on CNBC talking about $60 oil, after some short term weakness.

Venezuelan Oil Minister Rafael Ramirez reported Tuesday (4/5) that "The Organization of Petroleum Exporting Countries is running out of spare production capacity"

Fed Chairman Allen Greenspan was quoted as saying "higher prices eventually should soften demand for energy and boost supply ...the investment needed to bring oil to market had fallen short of what was needed to match unexpected recent gains in demand, especially gains in China." He also said that the world oil refining capacity was "worrisome".

This reminded me that there were many other related items in the news recently, including:

Matthew Simmons president of his international banking firm was reported to say that Saudi Arabia's oil fields are in decline and they will not climb much higher then 10 million gallons per day (mmbd).

In the same article as above Nansen G. Saleri a manager of reservoir management for Saudi Aramco refuted Simmons statement saying that Saudi Arabia can maintain production capacity at the current rate of 10 mmbd for the rest of this decade and if needed they could increase maximum output by 20-50% within a decade.

The New York Times in its Feb 24, 2004 edition said "Saudi Arabia's vast oil fields, pumped for more than half-century, are in decline, raising serious questions about whether kingdom will be able to satisfy the world's thirst for oil in coming years."

On Tuesday 12 April 2005 on Aljazeera.net , bank of Montreal's analyst Don Coxe was quoted as saying "The combination of the news that there's no new Saudi Light coming on stream for the next seven years plus the 27% projected decline from existing fields means Hubbert's Peak has arrived in Saudi Arabia"

In the same report Saudi Aramco's chief executive officer Abd Allah Jumaa was reported to say "We have ambitious expansion plans to boost our capacity ... [and] raise our production capacity to 15 million barrels a day... We are confident that we can maintain these production rates for about half a century"

On NewsRatings, a financial analyst web site, quoted Saudi Arabia's Oil Minister Ali al-Naimi as saying " Saudi Arabia can increase its oil supply by 1.5 million barrels per day... [and]Saudi Arabia is planning to expand its oil production capacity to 12.5 million barrels per day in the next four years, beginning 2006"

"It was widely reported that a Goldman Sachs research report said "The oil markets are in a "super-spike'' period that could see 1970's-style price surges as high as $105 a barrel"

The EIA statistics and projections should be reviewed in light of these reports:

According to the EIA World Oil Demand report the world demand averaged 82.63 million barrels per day (mmbd) during 2004.

In their Annual Energy Outlook 2004 they projected 2004 consumption to be 82.25 mmbd in 2004, 84.26 mmbd in 2005 and 91.65 mmbd in 2010.

In the same report they forecast OPEC to produce 32.06 mmbd in 2004, 33.08 in 2005 and 35.79 by 2010.

In their April 2005 Short-Term Energy Outlook EIA also said "Gasoline prices in 2005 are projected to remain high, at an expected average of $2.28 per gallon for the April to September summer season, 38 cents above last summer. Similar high motor gasoline prices are expected through 2006."

In the same outlook they said "West Texas Intermediate crude oil prices are projected to remain above $50 per barrel for the rest of 2005 and 2006."

In looking this over there are many comments that could be made, but these five come to mind:

As pointed out in Rigzone it is unusual for so much publicity in the popular press. Does this mean that more people are becoming aware that declining oil production will occur at some time?

By saying that prices will remain high for at least two years, is EIA admitting indirectly that peak oil is a fact? I think that they are, but to the best of my knowledge they still think it is a long way off, somewhere in the 2030's. It will be interesting to see what they say in their Annual Energy Outlook 2005, due out next month.

EIA, in its base case, assumes that demand will grow by almost 2.2% between now and 2010. Is this realistic in view of China's and India's seemingly unquenchable demand or are we going into a economic decline that will sharply cut demand?

Where are we going to get even 10 mmbd more oil than we have now by 2010 if OPEC's output increases by only 3 mmbd. Russia, Caspian Sea area, Iraq, Venezuela? It seems very problematic, considering the number of countries whose oil production is in decline.

It seems that the only groups that don't believe that we will soon be in a period of short oil supplies are economists and financial types (except Simmons), the EIA and Saudi Arabia. Most forecasts (many of them not referenced here) expect a peak between 2 and 10 years from now. When is EIA and the administration going to get the message? And why are all the economists so uninformed? They must think that demand can squeeze oil out of a dry rock.

This comment on the WFMY2, Greensboro, NC web site sums it up:

"While gas prices continue to soar, now the U.S. Dept. of Energy says get used to it."

April 05, 2005

I received a comment from a consultant to exploration companies stating that I did not mention that our oil supply could be increased by greater exploration and that tax incentives should be used as a means to encourage increased exploration. He indicated that exploration had decreased due to exploitation by the major oil companies. They have done this by purchasing existing reserves and consolidation, thus controlling exploration of reserves.

The majors certainly have reduced their exploration budgets considerably, presumably because they have better uses for their money. The independents are exploring at a record pace as indicated by the number of oil rigs in use. Whether the majors are waiting for sustained price increases to do increased exploration or whether they believe their are few opportunities for exploration is beyond my knowledge. The political uncertainty in Venezuela, Russia and in the Caspian Sea area may create risks greater than the majors are willing to take. I don't think government incentives are likely and thus I believe we must let market forces resolve this issue.

March 31, 2005

With oil probably peaking in less than 20 years, if not five years, the more I think we need an alternative to the emphasis being placed on the hydrogen economy. Demonstrated and emerging technology as listed below likely to be the dominant technologies in the next thirty years. None of these technologies alone can get us there but together but in some combination they make sense.

The hybrid is here and can be ramped up as fast as anything.

Diesel technology can be used now, and should be, as lower sulfur fuels are brought to market in 2005-2006. They will reduce the environmental impact of diesels significantly. What we need is more models to choose from as there are very few.

Electric cars and plug-in hybrids for commuting and shopping will be more attractive, with greater range, as gasoline prices go up and battery technology gets better as it is starting to.

Unconventional oil is already starting to ramp up and will continue as oil companies cannot meet the demand.

Ethanol production is already significant with 3.4 billion gallons produced in the US in 2004.

Production costs for biodiesel can be reduced by using newer technologies.

The Fischer-Tropsh process can be used to produce both ethanol and diesel in larger quantities, at lower cost, than current biofuel producers. It can handle a much wider variety of feedstocks, like switchgrass, corn stover, wood chips, willows and poplars which are less costly.

Coal liquefaction is a proven technology and could supply all of our needs, but not in the required time period.

We can increase our electrical production from renewables like wind and solar systems.